5 things you need to know before salary sacrificing into your mortgage
Are you employed in the public or non-profit sector? If so, you might be eligible to salary sacrifice towards your mortgage, which could save you thousands in tax
But before you jump in, let’s explore what salary sacrificing your mortgage really means, its benefits, and the possible downsides.
If you’re employed by a not-for-profit, a hospital or healthcare service, or a publicly-funded institution, you might be able to make the most of a vast suite of salary sacrificing ‘fringe benefits’.
One such benefit could allow homeowners to salary sacrifice towards their mortgage, thereby helping them to avoid tax while meeting their regular home loan commitments.
But what does salary sacrificing mean? And are there downsides to salary sacrificing into a home loan?
Let’s explore the phenomenon so you can make the right decision for your financial situation.
But first: What is salary sacrificing?
Salary sacrificing, also known as salary packaging or total remuneration packaging, sees an employee foregoing part of their pre-tax salary in exchange for benefits of a equal or similar value.
So, you’re essentially letting your employer pay for something with your pre-tax income that you would have otherwise bought with your post-tax income. As you won’t be receiving the sacrificed portion of your salary in cash, it won’t be considered taxable income and won’t be subject to income tax.
All Australian workers can salary sacrifice into their superannuation fund – boosting its value while potentially minimising tax payable on the money sacrificed. Though, they won’t be able to access that money until they reach retirement age (except for in specific circumstances, one of which we’ll get to shortly), and superannuation contributions are still taxed, but at a low rate of 15%.
If you work for an employer that offers broader salary sacrificing, however, you might find it offers numerous ‘fringe benefits’.
Such fringe benefits might include the provision of:
- A car and payment of its expenses
- A novated lease
- Payments towards costs like childcare costs or rent
- Payments towards loan repayments – including mortgage repayments
Employees who work in the public or healthcare sector or for large corporations, charities, not-for-profits, or religious organisations might be able to make use of such fringe benefits.
An employer that provides these salary sacrificing options will likely need to pay fringe benefits tax (FBT) on their cost. Though, many organisations – such as public benevolent institutions, certain charities, and public hospitals – are eligible for FBT exemptions.
If your employer is exempt from FBT, it will be limited by how much it can allow an employee to salary sacrifice each year. If it surpasses these limits, it will need to pay FBT on the excess.
1. What does it mean to salary sacrifice into your mortgage?
If an employer offers the option to salary sacrifice into an employee’s home loan, and that employee takes them up on it, the employer will begin to pay a portion of a person’s mortgage commitment.
The employee won’t pay income tax on the salary sacrificed funds that are used to pay their home loan repayments.
Though, they might need to top up their repayments out of their take-home pay, as they might not be able to salary sacrifice the entire value of their repayments.
Importantly, you can only salary sacrifice towards the repayments on an owner-occupier home loan. Loan repayments for an investment property aren’t eligible.
Further, only a person’s actual home loan repayments can typically be paid using salary sacrificed funds. Those funds can’t go into an offset account, for instance.
2. What are the benefits of salary sacrificing into a home loan?
There are two major benefits of salary sacrificing towards mortgage repayments:
- A portion of your home loan repayments will be paid using specifically earmarked funds
This might help ease the perceived burden of mortgage repayments. - It will save you in income tax
For instance, if your annual pre-tax income is between $55,000 and $135,000 and you salary sacrifice $10,000 per year towards your mortgage, you’ll probably save around $3,000 in income tax each year.
Of course, you might also take the money you save in income tax and use it to make extra repayments.
That could save you a considerable amount of interest per year and shorten the life of your home loan substantially.
3. What to consider before salary sacrificing your mortgage repayments
Salary sacrificing towards mortgage repayments can be financially advantageous, but there are still a few things that a person considering doing so should be aware of.
There are generally administrative fees associated with salary sacrificing and they should be considered.
However, perhaps the most impactful factor to consider is that salary sacrificing can affect other aspects of your taxation.
If you have a HECS-HELP debt, for instance, your employer might take your post-salary sacrifice income into consideration when calculating how much of your pay to set aside for your study loan repayments. The ATO, on the other hand, will consider your pre-salary sacrificing income when it determines how much you need to repay in a given financial year.
That means you could be left with a bill at the end of each financial year unless you ask your employer to set aside more dosh on your behalf than it otherwise might.
According to the ATO, entering into a salary sacrificing arrangement might also impact certain other tax offsets, child support payments, and some government benefits.
However, the myth that salary sacrificing will see your employer paying you less super is just that – a myth. As per the ATO, your employer must provide your superannuation guarantee entitlements as if you don’t have a salary sacrificing arrangement in place.
If you’re unsure whether you could be negatively impacted by salary sacrificing, it might be worth reaching out to a taxation professional for advice.
4. Could salary sacrificing impact your home loan application?
If you don’t own a home just yet or you’re considering taking out a new mortgage and you’re particularly unlucky, your existing salary sacrificing activities could hold you back.
That’s because some lenders prefer to look at your take home pay, rather than your pre-tax salary, when they consider you as a potential home loan candidate.
If the person assessing your application doesn’t understand how salary sacrificing works – or simply can’t comprehend the often-complex payslips a person who is salary sacrifice receives – they mightn’t realise the breadth of your income. Thus, they might not realise that you’re capable of servicing the repayments on the mortgage you’re applying for.
For that reason, you might want to be prepared to answer questions and provide additional information regarding your salary sacrificing activities.
Further, some lenders could have policies in place that make them not very salary sacrificing-friendly. Fortunately, lenders’ customer service teams are typically well versed in such policies and happy to answer questions from prospective borrowers.
If all this sounds too much, you could turn to a mortgage broker for help. Mortgage brokers exist to help hopeful-borrowers find a suitable home loan. Though, they generally don’t have access to the entirety of the market and so, mightn’t be able to offer the best deal available.
See also: Mortgage broker or bank: Which one’s better?
5. What if your employer doesn’t allow for salary sacrificing?
If your employer doesn’t offer salary sacrificing, you’re not alone. Many businesses don’t provide salary sacrificing options as doing so would mean they pay FBT.
Further, just because an employer provides salary sacrificing arrangements, doesn’t necessarily mean it will offer the option to salary sacrifice into a mortgage.
Unfortunately, if your employer doesn’t offer the option to salary sacrifice into your mortgage, you won’t be able to bypass them. You’ll simply have to make your home loan repayments the traditional way.
Though, if your workplace doesn’t offer salary sacrificing (or you want to minimise your tax further) and you haven’t owned a home before, there is one way you can set aside a portion of your pre-tax income to go towards homeownership:
First Home Super Saver Scheme
If you’ve never owned property before, you might be able to make the most of the First Home Super Saver Scheme (FHSSS).
The FHSSS allows first-time buyers to withdraw voluntary contributions made to their superannuation account.
As mentioned above, salary sacrificed superannuation contributions are taxed at a rate of 15% – lower than any income tax bracket.
That amount able to be withdrawn through the scheme is limited to $15,000 made within any one financial year (plus associated earnings), up to a maximum of $50,000 of contributions made over many years (plus associated earnings).
Once the funds are withdrawn, that money must go towards the purchase of a property.
‘Associated earnings’ are calculated using a figure known as the ‘shortfall interest charge rate’. From July 2024 to September 2024, that rate is 7.36% p.a. – which is far higher than the interest rate offered on any savings account product available on the market in the same period.
All that means a first home buyer can salary sacrifice into their superfund to save their deposit and minimise tax in the meantime, all while receiving a potentially decent return on those funds.
Any Australian first home buyer can make the most of the scheme, whether their employer offers salary sacrificing or not.
Protect yourself from being Gazumped
Published on 10 May 2024
Gazumping sounds like something that might happen in a video game, but getting gazumped in the property market is certainly no fun.ON THIS PAGEIs gazumping legal in Australia?Who is to blame for gazumping?How to avoid getting gazumped
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In real estate, being gazumped means a seller has accepted your offer to buy their property but ditches it when a higher offer comes along. The practice of gazumping causes much heartbreak in the real estate world and happens more frequently in hot property markets when demand is high and prices are rising.
Getting gazumped can particularly sting when you have already paid for inspections, home loan application fees, and maybe even some legal costs. It is a bitter pill to swallow but there are some protections that can reduce the chances of it happening to you.
Is gazumping legal in Australia?
Yes, in most states and territories, gazumping is legal – or at least not subject to regulation. Queensland is the only jurisdiction that has tried to eliminate it.
In most parts of the country, if a buyer and a seller agree on a property purchase, the seller retains the right to accept higher offers until both parties have signed contracts of sale. In Queensland, a purchase agreement is legally binding once a buyer has made a formal written offer and the seller has accepted it. A final exchange of contracts is still needed for the sale to go through but at the acceptance stage, the seller is bound to honour the agreement, effectively locking out other prospective buyers from making further offers.
The ACT has also taken steps to make gazumping more difficult. There, a seller is required to have certain documents, such as title certificates, physically attached to most sale contracts, making it a little more involved to flick one offer for a better one.
In all other states and territories, it’s game on until contracts have been exchanged and signed by both parties. Not surprisingly, the longer that process takes, the greater the risk for gazumping.
Gazumping Laws by State and Territory
| State/Territory | Legal Status of Gazumping | Specific Regulations or Notes |
|---|---|---|
| New South Wales (NSW) | Legal | No specific anti-gazumping laws; contracts binding at exchange. |
| Victoria (VIC) | Legal | No specific anti-gazumping measures; contracts binding at exchange. |
| Queensland (QLD) | Restricted | Contract binding once a formal written offer is accepted. |
| Western Australia (WA) | Legal | No specific anti-gazumping laws; acceptance until exchange of contract. |
| South Australia (SA) | Legal | No specific anti-gazumping laws; contracts binding at exchange. |
| Tasmania (TAS) | Legal | No specific anti-gazumping laws; contracts binding at exchange. |
| Australian Capital Territory (ACT) | Restricted | Sale contracts must include certain documents, making it harder to change terms after an agreement. |
| Northern Territory (NT) | Legal | No specific anti-gazumping laws; contracts binding at exchange. |
Who is to blame for gazumping?
It’s difficult to apportion blame for gazumping. A real estate agent is legally bound to pass on all written offers to a seller. A seller is entitled to get the best price they can if it’s not illegal to do so, and it’s difficult to blame buyers for offering what they can to secure a property they’re set on.
While it has long been argued gazumping is unethical and not entirely fair, the practice continues. So, here’s how you can give yourself the best chance of it not happening to you.
How to avoid getting gazumped
Buy at auction
Unless you’re buying in Queensland, there is generally only one sure way of avoiding getting gazumped and that is to put in a successful bid at auction. Once bidding has finished and the auctioneer has declared the proverbial “going, going, gone”, the property goes to the highest bidder at the stated price. Because there is no cooling-off period for homes bought at auction, there is also no window for another buyer to step in and offer a higher price.
You also need to be aware there are a few risks with buying at auction. Because the sale is treated as ‘unconditional’ when the hammer falls, you are effectively locked into buying it and are obliged to put up a deposit that’s non-refundable, even if you aren’t able to get a home loan. Which brings us to…
Get pre-approval
Don’t wait until you’re making offers on properties to organise your home loan. Getting pre-approval for a home loan means a lender agrees, in principle, to lend you a certain amount of money. Pre-approved finance can give you confidence your home-buying aspirations are achievable and provides an indicator of what price range you should be looking at in your property hunting.
Having a pre-approved loan can also make you a more valuable buyer to a vendor but, importantly, it gives you a good head start on getting your loan formalised after a seller accepts your offer. Anything you do to reduce the loan approval process helps you avoid being gazumped while the funds come through and contracts can be exchanged. This also means being organised with your paperwork and responding promptly to communications and requirements of your lender.
Top owner occupier home loans
The table below features home loans with some of the lowest interest rates on the market for owner occupiers to get you started.
| Lender | Interest Rate | Comparison Rate* | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 5.29% p.a. | 5.33% p.a. | Owner OccupierVariablePrincipal & Interest10% Min DepositRedrawExtra Repayments | Available for purchase or refinance, min 10% deposit needed to qualify.No application, ongoing monthly or annual fees.Dedicated loan specialist throughout the loan application. | More details | Compare | Promoted | Disclosure | ||
| 5.24% p.a. | 5.15% p.a. | Built and funded by CommBankOwner OccupierVariablePrincipal & Interest20% Min DepositRedraw | A low-rate variable home loan from a 100% online lender.Backed by the Commonwealth Bank. | More details | Compare | Disclosure | |||
| 5.39% p.a. | 5.43% p.a. | Owner OccupierVariablePrincipal & Interest10% Min DepositOffsetRedrawExtra Repayments | Available for purchase or refinance, min 10% deposit needed to qualify.No application, ongoing monthly or annual fees.Quick and easy online application process. | More details | Compare | Promoted | Disclosure |
Important Information and Comparison Rate Warning
Don’t go too low with your price
Another way to reduce your chances of being gazumped is simply not to go too low with your price if you’re serious about securing the property. Do your research of the area and similar properties that have recently sold nearby. The seller and agent will likely have a price in mind but, understandably, will want to get the best price they can. If your offer is too low, it increases the risk of the seller, and the agent, being open to better offers. Offering a market-appropriate price can also make you appear a more serious buyer to work with.
Fast-track your building and pest inspections
Before proceeding with a sale, it’s always advisable to get a building and pest inspection. Buying a home or investment property is likely to be the biggest purchase you’ll ever make so it’s important not to cut corners, even when time is of the essence. Make sure you have your services on stand-by to get their inspections done and their reports back to you as soon as possible. Some businesses offer building and pest inspections together although it’s best to ensure there are two different specialists working in tandem to deliver them.
Get a copy of the contract ASAP
As we’ve learned, an agreement between a buyer and seller is not legally binding until contracts of sale are exchanged (except in Queensland). That’s why it’s important to get a copy of the contract as soon as you can to have your solicitor look over it. Contracts can be obtained from the real estate agent even before you make a formal offer. Much can happen over a weekend, or even a night, so any extra time you can save could make the different between securing the property and missing out on it.
Have your legal advice organised
Work with your solicitor or conveyancer to get to exchange of contract stage as soon as possible. Be organised, be responsive, and make sure you are ahead of the game when you get your legal advisor to look over the contract and be satisfied with what it contains.
Many solicitors commonly advise buyers to make contracts subject to finance and building and pest inspections as built-in safeguards. In any case, you should have your loan approval process and inspections well underway by that stage. Keep in regular touch with your solicitor or conveyancer and follow up if there are any delays. You may need to do some chasing to keep the process on track.
Be wary of relying on the cooling-off period
In their haste to secure a property and avoid being gazumped, some buyers may skip ahead in exchanging contracts, leaving mandatory cooling off periods as their only safety net in getting out of the contract should something go awry. This can bring its own risks.
Not every state has a cooling-off period after contracts of sale are exchanged.
| State or territory | Cooling-off period* |
|---|---|
| New South Wales | 5 business days |
| Victoria | 3 business days |
| Queensland | 5 business days |
| Western Australia | No mandatory cooling-off period, but buyers and sellers can add one to a contract. |
| South Australia | 2 business days |
| Tasmania | No cooling-off period. Once the contract is signed, both parties are bound. |
| Australian Capital Territory | 5 business days |
| Northern Territory | 4 business days |
*Correct as at May 2024
Where it applies, some buyers take the gamble that the cooling off period will buy them extra time for their finance to be approved, their building and pest inspections to be done, and their legals to be on track. But, ideally, these variables should all be ticked off before contracts are exchanged.
If something doesn’t line up the way you expected, for example, you are turned down for finance from your first lender or the property has structural issues, you’ll need to know that before the end of the cooling off period. At that stage, you can still pull out of the contract without penalty.
But if you only find these things out after the cooling-off period has expired, you can lose your deposit and/or be up for a portion of the contract price, generally between 0.2-0.25% depending on the jurisdiction. In worse case scenarios, the seller could even take legal action to force you to proceed with the purchase. It depends on the conditions set down in your contract and if a legal eye hasn’t yet had a chance to look over it, that could be disastrous.
While it’s not pleasant being gazumped, it can be far more stressful to take major risks in trying to avoid it. There will be other properties out there but any money you lose won’t be coming back.
Related: Can you break a real estate contract?
Keep in touch with the real estate agent
By law, real estate agents are required to pass on any written offers made to the vendor until contracts are exchanged. If your offer is gazumped, assess whether you are in a position to make a better offer. (Maybe you can be a gazumper.)
If you are at the top end of your price range, be prepared to let the property go and keep looking. But it doesn’t hurt to follow up with the agent to see if the offer that usurped you is proceeding smoothly. There are many variables that can stand in the way of this happening. At least let the agent know, in writing, what your highest offer is and that you are ready to proceed should that sale not go ahead. You have nothing to lose.